Morgan Stanley abandoned an attempt to block first-year bankers from talking with recruiters for outside companies after employees complained, according to two people with knowledge of the matter.

Morgan Stanley had required investment-banking analysts, a title given to entry-level bankers who typically just graduated college, to swear off interviewing with other firms until Oct. 1, said the people, who asked to remain anonymous because the policy wasn’t public. Morgan Stanley reversed course last week after the analysts, who typically work under two-year contracts, complained they were at a disadvantage to their peers at rival banks, the people said.

Wall Street firms, forced to shrink analyst programs amid a revenue slump, are trying to guard the best of their recruits from poaching by rivals such as private-equity funds. Analysts are also under pressure, as they vie for fewer long-term openings at the banks and stiffer competition for admission to top business schools after their contracts end, said Alan Johnson, founder of compensation consultant Johnson Associates Inc.

“There’s not as many slots as there used to be, and not as many slots turn into first-year associate or third-year analyst promotions,” said Richard Lipstein, managing director of New York-based recruiting firm Gilbert Tweed International.

Analysts typically make base salaries in a range of $70,000 to $90,000, with bonuses bringing the total compensation figure to as much as $140,000, said Johnson, whose firm is based in New York. The junior-banker title doesn’t refer to research analysts who recommend stocks to investors.

Avoiding Distractions

Morgan Stanley, the sixth-biggest U.S. bank by assets, had sought to delay outside recruitment to prevent distractions and productivity loss, said one of the people with knowledge of the decision. Junior bankers were interviewing elsewhere after only six months at the firm and securing other jobs with more than a year left in the program, the person said.

Some analysts objected, particularly as other banks refrained from similar bans, the people said. Eventually, many Morgan Stanley analysts sought interviews secretly, ignoring the pledge they signed last year, one of the people said.

“That’s a difficult thing to monitor,” Lipstein said. “While you can scare the bejesus out of a 22-year-old, the smart ones will know that you can’t stop someone from managing their career.”

The bank held a meeting April 12 led by Grace Kim, an executive director in the investment-banking division, to say it was rescinding the rule, the people said.

Cutting Back

Many banks have been cutting back on such programs as merger activity hasn’t recovered to pre-crisis levels, said Johnson, the consultant. Early last year, firms including Credit Suisse Group AG also considered freezing automatic annual pay increases for junior bankers, people with knowledge of their deliberations said at the time.

Goldman Sachs Group Inc., ending a practice in place for a quarter century, decided last year to stop offering two-year contracts to investment-banking analysts, instead emphasizing longer careers at the company.

Morgan Stanley was the second-ranked adviser on global mergers and acquisitions last year, according to data compiled by Bloomberg. It was the top-ranked underwriter of initial public offerings and total equity offerings in 2012, the data show.

Chief Executive Officer James Gorman, 54, last year dismissed the thought that Wall Street’s earnings turmoil and bad publicity linked to the financial crisis would lead to fewer students going into finance. About 80 percent of college and business school applicants who were offered a job took it, he said.

“That is not a constraint, it’s not going to be a constraint,” Gorman said in March 2012. “There will always be somebody who says ‘Well, I always wanted to be an investment banker, but I’ve had this sort of moral epiphany, and now I’m not.’ I mean, it’s ridiculous.”